Whilst London continues to dominate the UK’s flexible office sector, regional cities like Birmingham and Manchester have experienced strong activity over recent years, according to a report.
The JLL Distraction or Disruption, where next for the UK flex market sector report, estimates that over the next five years, more than 10m sqft will be added to the stock in the key UK cities and flexible workplaces will exceed 8.5% by 2023.
The UK flexible workplaces currently account for just 5% of all stock. Last year, the flexible space footprint grew by 25%, a similar rate to 2017, the report said.
London dominated the sector but the big 6 regional cities –Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Manchester – have seen strong activity over recent years from operators, the report said.
Elaine Rossall, head of UK offices research at JLL, said activity in the big 6 regional cities will take off in the next few years, particularly with WeWork who was instrumental in driving the expansion of Central London, now entering the regional markets.
Manchester is presently the most mature of the regional cities, Rossall said, adding that not only was it the first location outside of London to secure WeWork, but over the last five years ”flex space has increased in the city at a rate of just under 350% outstripping Central London which saw an increase of circa 210%”.
New markets for operators will be chosen carefully, operators will not target every city and secondary cities are less likely to see the widespread adoption of flex.
“London will also see further growth as operators plan to expand their footprint in the capital, however in the short term, the pace of growth may slow due to supply dynamics in Central London. The increasing number of landlords launching their own platforms and therefore seeking not to let space to flex operators may also impede their expansion,” Rossall said.
The report also highlighted that the concept of landlords and operators partnership model which is gaining momentum as the sector continues to evolve.
“By partnering with an operator, the landlord benefits from the upside but without having to enter directly into the sector,” the report stated.
Neil Prime, head of Central London offices and UK office agency at JLL, said: “To date investors have largely, but not exclusively, engaged with this sector on a traditional lease basis, however as the sector and investor attitudes have developed and matured there are increasing instances of partnerships between investor and operator where both can participate in the performance of the coworking entity.”
Prime said one of the key issues for investors as the sector moves forward is whether a ”consistent valuation methodology can be adopted to more accurately assess the potentially higher income returns” that can be achieved.
“We expect that given the scale of the sector and the likely increase in partnership agreements as investor attitudes change, that it is more likely that this will happen, and investors will become more comfortable with partnerships as part of a long-term risk-adjusted portfolio.”